Public Bill Committee

[Hugh Bayley in the Chair]
Written evidence to be reported to the House
EN 37 Royal Academy of Engineering
EN 38 The Co-operative Group

Clauses 122 and 123 ordered to stand part of the Bill.

Clause 124  - Extent

Amendment made: 99, in clause124,page94,line37,after ‘paragraphs’ insert ‘16(3),’.—(Mr Hayes.)

Clause 124, as amended, ordered to stand part of the Bill.

Clause 125  - Commencement

Gregory Barker: I beg to move amendment 133, in clause125,page95,line19,at end insert—
‘() sections [Power to modify energy supply licences: domestic supply contracts], [Section [Power to modify energy supply licences: domestic supply contracts]: procedure etc], [General duties of Secretary of State] and [Consequential provision] (domestic tariffs: modifications of energy supply licences);
() section [Powers to alter activities requiring licence: activities related to supply contracts].’.

Hugh Bayley: With this it will be convenient to discuss the following:
Government new clause 13—Power to modify energy supply licences: domestic supply contracts.
Government new clause 14—Section [Power to modify energy supply licences: domestic supply contracts]: procedure etc.
Government new clause 15—General duties of Secretary of State.
Government new clause 16—Consequential provision.
Government new clause 17—Powers to alter activities requiring licence: activities related to supply contracts.
New clause 6—Cheapest tariff—
‘A company supplying electricity, gas or heating oil to a domestic customer shall, at least annually, inform the customer of the cheapest tariff available to that customer (based on that customer’s current method of payment and usage during the previous 12 month period) and move the customer to that tariff if that customer is aged 75 or over.’.
Government amendment 135.

Gregory Barker: The Committee may recall that in October the Prime Minister committed to legislate so that energy companies have to give the lowest tariff to their customers. This group of amendments fulfils that commitment.
We know that consumers already feel hard-pressed by their gas and electricity bills and that global energy prices are predicted to continue rising. Against that background, with our relentless determination to do more to help the consumer, the coalition Government are determined to help the consumer to get the best possible deal and to pay no more than necessary in a competitive market. We believe the best way to do that is through a well functioning, competitive market with suppliers bidding against each other on price and quality to win customers.
At the moment, a key ingredient of that competitive market, properly engaged consumers, is lacking. The latest evidence from Ofgem, which tracks consumer engagement through regular detailed surveys, is that some two thirds of all consumers say they have never switched their energy supplier, and only 13% to 14% had done so in the previous year. Of course, some consumers may have fully engaged with the market without ultimately choosing to switch if, after shopping around, they felt they already had a good deal. Nevertheless, Ofgem’s evidence suggests a large proportion of customers either do not attempt to engage in that way or try to do so but give up without completing the process. That level of unengagement appears to be particularly high among the most vulnerable customers.
In 2010, Ofgem launched its retail market review to investigate the problem and identify how to address it. Since then, the regulator has gathered evidence and conducted several phases of consultation across the full range of stakeholders. Likewise, my Department has recently produced a discussion document seeking views on a range of possible ways to improve the market, which will inform our policy along with Ofgem’s findings once they are finalised in the spring.
Alongside that detailed policy process, we have developed this group of legal provisions to ensure that action may be taken as quickly as possible to benefit consumers. The provisions provide a legal back-up and framework to Ofgem’s work and send a clear, unambiguous signal to energy suppliers of this Government’s intent to act in the area. Taken as a whole, the provisions form a coherent package that will enable measures to save consumers and improve the level of competition in the market, ensuring that customers are on the cheapest tariff consistent with their preferences. The provisions are sufficiently flexible to ensure that they remain relevant in a market that is rapidly changing. They are also subject to a sunset clause to ensure that they remain law only if still of value in 2018. The precise details of how they will be implemented will be set out through secondary legislation following our formal response to the comments on our proposals and the publication of Ofgem’s proposals. We would not want to prejudge the independent regulator on any specifics by announcing them today. Together, the provisions support simplifying the market for consumers, moving those consumers on poor value tariffs to the cheapest alternative and ensuring that clear information is provided to consumers on alternative tariffs and on any savings they could make by switching. The provisions also potentially bring within Ofgem’s regulatory remit third-party intermediaries such as switching websites.
I will now further explain the rationale for each of the main provisions. New clause 13(3)(a) allows the Secretary of State to require suppliers to offer particular types of tariff. The intent is to be able to establish one or more commons tariffs across the market, so that consumers can easily compare them and so that they feel confident about what they get from a tariff when considering moving to a new supplier. That may, for example, require all suppliers to offer a standard variable rate tariff. Subsection (8) restricts the provision so that the only feature related to price that can be specified is whether the price is fixed for a particular period or variable.
Proposed new subsection (3)(b) allows the Secretary of State to limit the number of tariffs, so that consumers face a more straightforward choice. The provision allows for different categories of tariff to be subject to different limits or to remain unlimited. The intention is to maintain flexibility in case there is a special category of tariff that the Secretary of State may want to exempt, such as tariffs designed specifically to help the fuel poor.
Proposed new subsection (3)(c) allows the Secretary of State to set out a range of options that can be offered to consumers as part of a tariff, such as discounts for paying by direct debit. The intent is to continue providing consumers with features that they value, recognising that different consumers have different preferences, but to ensure that that is done in a way that is consistent overall with simplifying the choices that they face.
Proposed new subsection (3)(d) gives the Secretary of State the power to require suppliers to provide information to current and prospective customers. As with other powers, that is limited to measures that fulfil the clause’s purposes in relation to competition and saving consumers money, as stated in subsection (2). Proposed new subsection (4)(a) provides examples of the sorts of information that may be required from suppliers under proposed new subsection 3(d), including information on the cheapest tariff available with the same supplier and on any savings the consumer could make by moving to it. Proposed new subsection (4)(b) indicates that the format of such information can also be prescribed, which would include requiring it in a form that could easily be transferred on to smartphones and other devices and used with software to calculate the best deals available across the market for that consumer. That could also require suppliers to provide figures, such as a standard comparator metric for each tariff the supplier offers, to ensure easy comparisons right across the market.
Proposed new subsection (3)(e) allows the Secretary of State to require suppliers to move customers from one type of tariff or supply contract to another. For example, some customers—in fact, a number—are on what are termed dead tariffs, which are closed to new customers and without a fixed end date, and therefore continue indefinitely. Some dead tariffs are good value and we would not propose to change them, but others are more expensive than the equivalent live tariff offered by the same supplier. Disengaged consumers, whom we know to be the majority, including a disproportionate number of vulnerable consumers, are much more likely to be on those poor value, passed-over dead tariffs than engaged ones are. The provision will give the Secretary of State the power to make it compulsory for suppliers to move those who could save money on to the cheapest, live standard variable-rate tariffs. This is the meat of what the Prime Minister was pledging to do. Customers would have the ability to opt out of the process, if they wish, while the remainder would save money without having to lift a finger.
Proposed new subsection (5) complements the provisions by ensuring that, through secondary legislation, the Secretary of State can through define the various elements involved, and prescribe standard assumptions and methodologies for all suppliers to follow. Paragraph (c) allows the Secretary of State to delegate some or all of these functions to the independent regulator, if desired.
New clause 14 establishes the process by which modifications can be made under new clause 13 and sets out the sunset provision for 2018. I do not propose to go through the detail, unless Members have specific queries, but new clauses 15 and 16 are, effectively, consequential amendments.
New clause 17 extends the scope of energy-related activities that can be made subject to a licence regime governed by Ofgem to include the activities listed in paragraphs (a) and (b) of proposed new section 56A(4A) of the Electricity Act 1989. An activity will not be subject to a new licence regime unless and until prescribed by order of the Secretary of State on the application of Ofgem. For that to happen, Ofgem would first need to specify the particular activities that it wished to make licensable and then, setting out its reasoning, to undertake a consultation of affected parties, including businesses carrying out affected activities or intending to do so. It must also set out what licence conditions it intends to apply to the activities in question. Depending on the outcome of that consultation, Ofgem may submit an application to the Secretary of State. Any order would be subject to the affirmative resolution procedure in this House. The purpose of the provision is to enable Ofgem to regulate third party intermediaries in the energy market, or TPIs, such as switching websites, should that be necessary.
New clause 13(2) sets the parameters within which the Secretary of State can take action in relation to retail tariffs, but makes it clear that powers may only be exercised for the purposes of promoting competition or helping to reduce overall costs to consumers. It is important to reiterate that those powers may only be exercised to promote competition or reduce overall cost to consumers. The provision does not mean that the Secretary of State can intervene to regulate energy prices or to go back to the nirvana of Harold Wilson in the 1970s and introduce price controls. The actions that can be taken are those set out in subsection (3).
The Government agree with the intent of new clause 6. The most vulnerable should be helped to keep their energy bills as low as possible—we are all agreed on that. The Government, however, want to go further. The amendments proposed by the coalition, therefore, will ensure that all households, not only the over-75s, are on the cheapest tariff that their supplier offers and which meets their preferences. The Government agree that all consumers should be assured that they are on the cheapest tariff available to them from their existing supplier. That is why we also propose to require suppliers to give their customers clear personalised estimates of any savings that they can make by moving to the supplier’s cheapest tariff.
New clause 6 will also require a company supplying heating oil to a domestic customer to inform the customer of the cheapest tariff available to them, and to move customers over 75 on to that tariff. The supply of heating oil is not covered by the natural gas and electricity regulatory regime that Ofgem operates, but safeguards are in place through the Office of Fair Trading and the Competition Commission to ensure that competition is fair and that consumers are protected. We believe that this open market for heating oil, with safeguards in place through the competition authorities, provides the best long-term guarantee of competitive prices for the consumer.

Albert Owen: Have the Government considered whether Ofgem, as a regulator, rather than the OFT and others concerned with competition and fair trade, should look at the issue of people who are on heating oil and off the gas mains? If we are talking about the cheapest tariff in relation to gas and electricity, why not do so for oil?

Gregory Barker: I have a great deal of sympathy with that point, not least because I am an off-gas grid heating oil consumer in Sussex. It can be eye-watering to pay the heating oil bill, and I frankly wonder how some families manage to do so.
The reason why we have a regulator such as Ofgem to regulate the electricity industry is that electricity is a different type of market and is delivered in a different way from heating oil. Ofgem has a remit to regulate the monopoly companies that run the electricity and gas networks, which operate differently from the heating oil market. The Government have looked into that, because of concerns that cartels or tariffs might be at work and about a lack of competition in the market, but there are no natural or structural monopolies in the supply and distribution of heating oil or liquefied petroleum gas. It is simply not right to regulate heating oil in the same way as we regulate electricity, just as we would not regulate other commodities that people can buy online or over the phone and have physically delivered to their home.

Albert Owen: I am grateful to the Minister for giving away again on this important point. I acknowledge that the Government have held another inquiry, though the Office of Fair Trading, as was done by the previous Government, and came to the same conclusion. Some of the most vulnerable customers whom we represent are off-grid, and the Prime Minister has stood up at Prime Minister’s questions, saying that he will help them get the cheapest gas and electricity. Surely the Minister understands that, even with such great difficulties, those who are off-grid and on oil also need cheap tariffs.

Gregory Barker: I understand that point and where the hon. Gentleman is coming from. As he said, his Government were not blind to the issue. They looked at it as seriously as we have done and came to the same conclusions, not because they were in any way blind to the problems, but because they came up with the same evidence base that we did when we commissioned our study. I assure him that we will continue to examine the sector in relation to both availability and cost, and if there are signs of genuine monopoly or cartel, we will act. I know that my hon. Friend the Minister of State is determined rigorously to watch the sector and is absolutely prepared to act if action is deemed necessary.

Michael Weir: There may not be a monopoly in the sense there is in electricity and gas, but there are certainly regional monopolies in many areas, where one supplier may operate through various companies. The second point is that the main difficulty with fuel oil is that it has to be paid for up front with very large sums. Nothing in the Bill will in any way help people who have difficulty paying for it in that manner.

Gregory Barker: The hon. Gentleman raises valid points, but the problem is that he is starting to look at concerns that, although absolutely central for heating oil customers, are slightly beyond the remit of this electricity market reform Bill. He raises issues about how these things are paid for and how vulnerable customers, in particular, budget for them, but those come very much within the remit of the Department for Work and Pensions. The Government are endeavouring to bring policy together much more coherently, but benefit payments do not really come under the purview of the Committee, the Bill or electricity market reform.

Michael Weir: It is not a question of welfare payments. The Minister talks about electricity market reform, and he is right, but the new clauses also refer to the mains gas market, so he is going beyond electricity market reform. The Bill now appears to encompass the prices paid by consumers for gas and electricity, so I do not see why he cannot address the question of fuel oil.

Gregory Barker: As I said, we are fundamentally dealing with issues that come within Ofgem’s remit, and heating oil does not, although it does come under the remit of the Office of Fair Trading. I understand the hon. Gentleman’s frustrations, but, in exactly the same way, biofuels and people with wood-burning stoves do not come under Ofgem’s remit. Such fuels, which can be supplied and delivered to the home quite independently of a monopoly transmission grid, are structurally different. That is why they do not come under Ofgem’s remit. Ofgem’s legal powers are limited to regulating electricity and gas markets, but we will keep the matter under review. We are not complacent about this in any way, shape or form, and we will consider appropriate interventions. However, the Bill is not the place for that.

Robert Smith: In that review, will the Government consider that Ofgem has not only a market role, but a role in promoting the social responsibility of suppliers of electricity and gas and in ensuring that they treat their customers fairly and deal well with vulnerable customers? In his review, will the Minister discuss with the solid-fuel and oil-supply industries how they can do more to understand whether they have vulnerable customers and to transfer some of the lessons learned in the electricity and gas market to the OFT-regulated market?

Gregory Barker: My hon. Friend makes a great deal of sense, and his suggestions are sensible. My hon. Friend the Minister of State actually has direct responsibility for those aspects of the DECC portfolio, but I know he has been concerned from day one about them and about the seeming ambiguities. He will be happy to take up my hon. Friend’s suggestion of meeting suppliers, considering a more holistic approach and working out whether there are lessons to be learned.

Albert Owen: I am definitely trying to help the Minister—indeed, both Ministers, because I know this is not the right hon. Gentleman’s responsibility. The provisions are a broad appeal to customers to switch to get the cheapest tariff. Ofgem has responsibilities, and one of its priorities is to be the advocate for the consumer. All we are asking—the many of us who have taken part in this brief exchange—is that that be extended to oil customers. Will the Minister consider, during the passage of the Bill, whether it is possible for Ofgem to extend its portfolio, remit and responsibility to include oil heating?

Gregory Barker: I cannot make that promise, but the hon. Gentleman has to be clear that we are dealing with something very different. It is very easy to compare prices of heating oil from one supplier to another. However, with the existing tariff structure, it is very difficult to make that comparison on electricity consumption. It is much more complex. Comparing prices of heating oil is as simple as comparing Shell and Esso when filling up a car. We all have a great deal of sympathy with the points that the hon. Gentleman makes on competition, be that nationally or regionally, but in terms of tariffs, ease of understanding and comparison, it is quite simple. I know from when I compare prices that I can get offers. Offers change and fluctuate during the year, but in terms of comparing like with like among companies that offer heating oil, I do not think there is a compelling case for intervention, in the way that there is for comparing electricity prices, which is a much more complex field.

John Hayes: My right hon. Friend is making an extremely powerful case about the differences, and he is right, as I think the Committee would acknowledge, that they are profound. With your indulgence, Mr Bayley, I might just say that the issues about accessibility are also profound. Being able to access the supply of heating oil is probably as significant as the issue of comparability. I hope that my comments are helpful. We need cross-party discussion on the matter, not necessarily in relation to the Bill, although we may need to discuss that, and I would be delighted to offer that through the avenue of this consideration. Perhaps we can begin a new initiative to consider the matter on a cross-party basis and see what can be done in the terms that have been described. My right hon. Friend is right that separate consideration is required because of the challenges associated with availability, comparability and price.

Gregory Barker: I thank my hon. Friend for that incredibly helpful and generous intervention. I hope that members of the Committee take it in the spirit that it was intended, as a genuine offer for candid, cross-party dialogue on the issue. It is not really about being partisan. As I said, the previous Government looked at the matter and encountered the same barriers and structures as this Government, and I think both sides of the House are willing to try and address it. I hope that my hon. Friend’s words will assuage in some way the Committee’s concerns.

Alan Whitehead: On the question of Ofgem and the authority, would the Minister be able to help the Committee by setting out exactly which parts of new clauses 13 to 16 are not contained in the powers that Ofgem already has to modify licences? Which parts of those new clauses might, as he pointed out in relation to new clause 13(5)(c), be capable of conferring powers on the authority that it does not already possess?

Gregory Barker: I will be very honest, I cannot do that off the top of my head. However, if we are going to have a short debate on the clauses, in summing up, I would be happy to look at the points raised by the hon. Gentleman and come back to them in more detail, after I have swotted up.
In conclusion, taken together, the provisions that I have set out will enable the Government to take action on behalf of consumers to ensure that they are on the cheapest tariff offered by their supplier, consistent with their preferences, while at the same time, encouraging a simpler market for consumers to engage with, and also offering greater competition.
I see that the hon. Member for Liverpool, Wavertree is trying to dissect and disassemble my words. When the Prime Minister made the pledge, he was not proposing to take someone off a fixed-term tariff against their wishes and put them on to a flexible one, or take someone who had given a clear preference to be on a green energy tariff and put them on to a fixed-term tariff. That is not what he said. He proposed to cut through the blizzard of tariffs, which had escalated dramatically under the previous Government, to create a huge thicket.They increased by several hundred. When the Leader of the Opposition was Energy Secretary, he did nothing to simplify the market. We have the chance now. The Prime Minister knows what is important to consumers, which is why he made this important pledge. The powers that we are debating today will allow us unambiguously and clearly to deliver on the Prime Minister’s pledge to hard-pressed consumers. On that basis, I commend the Government’s amendments and new clauses, and ask the Opposition not to press new clause 6.

Robert Smith: On a point of order, Mr Bayley. In my intervention, I should have reminded the Committee of my entries in the Register of Members’ Financial Interests related to the oil and gas industries.

Hugh Bayley: I am grateful to the hon. Gentleman for putting that on the record.

Luciana Berger: It is a pleasure, as always, to serve under your chairmanship, Mr Bayley. I rise to speak to new clause 6 in my name and that of my hon. Friend the Member for Rutherglen and Hamilton West, and to respond to the Government amendments and new clauses in this group.
New clause 6 would force energy companies to inform all customers, at least once every year, whether they are on the cheapest available tariff, and automatically to move any customer over the age of 75 to that tariff. It would give real help to all those who are struggling to meet the rising cost of keeping warm.
Over the course of our deliberations, hon. Members from both sides of the Committee have often made the case for the Government to act to lower energy bills. After all, the cost of heating and lighting our homes has risen by £300 since 2010. The average fuel bill now stands at £1,400. According to National Energy Action, more than 6.6 million households across the UK cannot afford to heat their homes. Research by Consumer Focus shows that the number of households in debt to their electricity supplier has increased by more than 25% to 850,000, and the number of gas customers in the red has risen by 20% to more than 700,000. Many householders are in debt on both accounts. Not only have bills risen but so too has the number of tariffs. We have had this discussion before, but it is worth reiterating. As the Minister said, at present—I do not think that he put a number on it—more than 400 different energy tariffs are available to consumers. That makes the process of identifying the best deal incredibly complex. Despite the competition between the different companies, the complexity of the products on offer means that four in five households, or 80%, are overpaying on their gas or electricity bills. The Government have stated that it is possible for households to save up to £200 from an annual dual-fuel bill by shopping around for the lowest online rate. However, research by Ofgem shows that pensioners are less likely not only to switch supplier than the average consumer but to investigate cheaper tariffs and switch suppliers online.
If the Government accept the new clause, more than 10,000 pensioners in the constituency of the hon. Member for South Holland and The Deepings and 14,000 pensioners in the constituency of the right hon. Member for Bexhill and Battle would save on their energy bills. Across the country, it could save as many as 4 million pensioners as much as £200 a year on their energy bills. Such a saving could be achieved not by spending more money but by getting our energy firms to show greater responsibility to their most vulnerable customers.
I have just heard from the Minister details of what the Government’s proposals are in this area. However, despite what he said—I listened to him very carefully and made many notes during his remarks—there is still significant confusion about exactly what the Government are proposing, and about how the proposals outlined in the new clauses that we have just discussed would work in practice.
Since the Government published their new clauses, Labour Members have sought views from companies involved in the energy sector and from consumer groups, and it is clear that even following the remarks from the Minister the confusion that exists is still warranted.
During Prime Minister’s questions on 17 October last year, the Prime Minister said:
“I can announce…that we will be legislating so that energy companies have to give the lowest tariff to their customers”.—[Official Report, 17 October 2012; Vol. 551, c. 316.]
However, it is actually hard to see that that is what the Government are doing. On the surface, subsection (2)(b) of new clause 13 would appear to do what the Prime Minister said. It reads:
“The power under subsection (1) may be exercised for the purpose only of—
(a) promoting competition in domestic supplies of gas and electricity; or
(b) requiring licence holders to change the domestic tariffs or other terms of domestic supply contracts so as to reduce the costs to their domestic customers for supplies of gas or electricity.”
Subsection (2)(b) appears to give very broad powers to the Secretary of State, which could allow for a variety of things, including a cap on prices and, in effect, forcing energy companies to move their customers to a lower tariff. However, as we know, all is not what it seems, because subsection (8) of new clause 13 says that, when defining a “standard domestic tariff”, the powers may allow, as subsection 8(a) says,
“a term providing for a charge…to be fixed for a period”,
but subsection (8)(b) says they
“may not otherwise include any term setting a monetary charge or rate.”
That seems to rule out the possibility of using the powers in subsection (2)(b) to cap prices or to force energy companies to put customers on to the cheapest tariffs.

Gregory Barker: To be clear, the hon. Lady has just said that she is concerned that subsection (8) seems to rule out the ability to cap prices. Is she suggesting that the Labour party is seeking to cap and control electricity prices, in a return to a 1970s-style income and prices policy? Is that the new position?

Luciana Berger: No. I thank the Minister for his intervention, and I note that he was in discussion with the other Minister who is here while I was making my remarks. I said, “and, in effect, forcing energy companies to move their customers to a lower tariff”. I am sorry if he misheard me when I made my remarks, but, no, what he suggested is definitely not what I was advocating. I am just trying to clarify something that has been very confusing to people outside this House since the Government tabled their new clauses; I am trying to decipher or interpret what they mean.
When I listened to the Minister just a moment ago, it was clear that we will not actually get clarification on these questions until secondary legislation. The Minister nods, so I have got that right. I listened carefully to what he said, and at the end of his response we heard a new term, one that we have not heard before. The Minister used it quite a number of times during his remarks. He said that consumers will be moved on to the cheapest tariff, and the term that he used was “consistent with their preferences”. This is the first time that we have heard that term, “consistent with their preferences”. Again, I was not quite clear. The Minister endeavoured to explain what he meant by that remark. However, the legislation, and the amendments and the new clauses that we are considering, do not mandate.
Again, in the Minister’s remarks, he said that there was “intent”, and he said that the measures will “allow”. However, the Prime Minister, in October, said very clearly that the Government would legislate. From what the Minister has said, and from the new clauses, Labour Members are not sure that the Bill will mandate energy companies to do that. Of course, we will now have to wait until secondary legislation to see, for sure, what the Government intend. I am not 100% clear from what the Minister said today. We will have to wait for the secondary legislation.
There are many things we can say from what the Government have said today. Certainly they are reducing the number of tariffs that are on offer. To some extent that is welcome. There is a huge array of complicated tariffs on offer, making it impossible for consumers to identify and choose the best deal. It is strange that while the Government say that they are concerned about the number of tariffs, they are not acting to change the nature of tariffs by simplifying them so they are made up of a standing charge and a unit price. The Opposition suggested that well over a year ago. Ofgem agrees with us. I am keen to know why the Government are not acting on this. The consumer group Which? also believes that this is a missed opportunity by the Government to make a change that would genuinely benefit consumers.
In an investigation last November, Which? asked more than 1,000 members of the public to select the cheapest out of six current tariffs and then do the same from six simplified tariffs with a unit rate. It found that just 8% of people could identify the cheapest current tariff whereas 89% of people picked the cheapest simplified tariff. The Minister said a moment ago that it was difficult to compare electricity and gas prices. Why are the Government not therefore going further and introducing these simple tariffs? What happens if consumers find that they will be paying more under the Minister’s proposals rather than less? There is a danger that to ensure that profit levels are maintained, even after the number of tariffs has been reduced, energy companies will simply raise their prices even further. How many people does the Minister expect will see their bills rise as a result of these proposals and by how much? What action will the Government take to combat across-the-board price rises?
We welcome the Government’s proposals for energy companies to tell their customers that they could save money on a different tariff, but there are serious concerns from consumer groups about the accuracy of these recommendations. Ofgem’s proposed tariff comparison rate, on which the Government’s proposals seem to be based, will not show consumers the price that they will personally pay. Instead it will be a blended price based on the national average annual price of a tariff at different consumption levels, either high, medium or low usage. If consumers fail to recognise, as we believe many will, that the TCR does not reliably tell them whether one tariff is cheaper than another for them personally, but is merely a prompt to search further and obtain a personalised price from a switching site or supplier, there is risk of mis-buying.
To make sense of the TCR, consumers will need to know their consumption or at least whether they are low, medium or high users. Evidence suggests that consumers do not have a sufficient understanding of their usage to do this. Using bills and annual statements to educate consumers about which usage category they are in is likely to be ineffective given low engagement with these communications. Even if the TCR does come up with accurate comparisons, as I have already mentioned, the crucial missing element of the Government’s proposals is the compulsion to act. Under the Bill—again we will have to wait for the secondary legislation on this—energy companies are not forced to put their customers on to the cheapest tariff. That is the crucial part.
It is reasonable to expect that when some consumers are presented with the information about cheaper options they may choose to switch. But the problem for us and for the people we are most seeking to help is that others may not. For some it will be because they do not read the letter and for others it will be because they have so little faith in what their energy companies tell them that they will not take their advice. A Consumer Focus report from June 2011 entitled “Missing the Mark” assessed the extent of consumers’ understanding and engagement with information from their energy suppliers.

Ian Lavery: Does my hon. Friend remember the former Energy Minister saying in evidence to the Select Committee that he had looked at the ways and means of changing his tariffs, but could not access what he wanted and gave up? If a Minister of the Crown cannot do it, how can we expect ordinary people at home on their laptops to change their tariffs?

Luciana Berger: I thank my hon. Friend for his intervention. We did hear that, and we have discussed on many occasions the challenges of switching and how 19 out of 20 people, even when presented with all the facts, find it difficult to identify the cheapest tariff, because so many different tariffs exist and because people do not properly understand their energy usage. I refer back to my concern that if the Government expect people to know whether they are a high, medium or low user of energy, that could present further complications. I spent a long time switching. It took me many hours. I did manage it, but I know how complicated it was.
Further to my hon. Friend’s intervention, the Consumer Focus report showed that “vulnerable and less-engaged” consumers were not being reached by the behavioural prompts on bills or annual energy statements, such as companies offering cheaper tariffs or consumption help. Would it not therefore be better for the Government to do it the other way around? Rather than hoping that consumers will look at the information for themselves, which we know is not happening currently, why not force the energy companies to move them? Why are the Government not going down the opt-out route? After all, that is what the Prime Minister said that they would do. The consumer still retains the right to refuse the offer, which is sensible. Some people prefer to have a fixed tariff and some prefer to pay by direct debit, and it is right that they retain those rights—the Minister mentioned the green tariff. However, this was the opportunity to change the way that the market works, so that energy companies give their customers the best deal and leave it up to them to choose whether they want a more expensive option, as opposed to the current situation where energy companies give consumers the more expensive option and then leave it up to them to fight for a better deal.

Gregory Barker: Is the hon. Lady therefore suggesting that someone who has opted for a green energy tariff would be automatically switched to a variable, regular, non-renewables tariff without their knowledge or consent and that it would then be up to them to opt back in to the green tariff?

Luciana Berger: Could the Minister make that point again?

Gregory Barker: The Bill’s intent is to put everybody on to the cheapest tariff. Ofgem has consulted on reducing the number of tariffs to four. The hon. Lady seems to say that she wants everybody on the cheapest tariff available regardless of its type. If I understand her correctly, that would in effect mean that those who have elected to be on, say, a green tariff—hundreds of thousands of consumers—would be taken off that tariff and put on to cheaper tariff, if available. They would then have to opt back in. Is that what she is saying?

Luciana Berger: I was in discussion with my hon. Friend the Member for Rutherglen and Hamilton West, because I did not quite understand the Minister when he first made his point. The point is that consumers should be offered the cheapest tariff, which they are not at the moment.

Michael Weir: The answer is actually quite simple. New clause 13(3)(e)(i) states that a supplier may have to switch a consumer
“to a different domestic tariff or different supply contract terms, unless the customer objects”.
The company will therefore have to go to the customer and say, “We want to switch you to this tariff.” If the customer is on a green tariff, they can say, “I want to stay where I am.”

Luciana Berger: The challenge for the Committee and the cause of our confusion is that we have not seen the secondary legislation. As a result, we are often talking at cross purposes. I refer back to my original point: in his opening remarks on the new clauses, the Minister talked about intent and the Secretary of State being allowed to act, but we did not get any clarification and so this debate is therefore very difficult for us. The Minister is nodding his head, as he agrees. We will have to wait for the secondary legislation before we can understand the measures fully.
I come back to my point about the new term we have heard discussed this morning. There were references to a tariff that is consistent with people’s preferences; what will that mean in practice? When he winds up, will the Minister give us more detail about that, as that is where some of the confusion lies? I thank the hon. Member for Angus for his intervention, as he sought to clarify matters a little more for us.

Dan Byles: I am confused about why the hon. Lady is so concerned about the reference to being consistent with consumers’ preferences. The Minister’s point was that it strikes us as entirely reasonable that if a consumer already has a preference—the example given was wanting to be on a green tariff—should the Government then do something to that consumer that is not consistent with that preference, that would seem wrong. Is she unhappy with that notion, or have we misunderstood? There is a lot of confusion on the Government Benches about her point.

Luciana Berger: Again, we are talking at cross-purposes here. We do not have the clarification.

Michael Weir: The hon. Member for North Warwickshire is missing the point entirely. Before there can be any change, it must be offered to the customer, who can say, “No, I want to stay where I am.” That is perfectly at evens with having choice for the customer, but also proactively trying to move people to a cheaper tariff.

Luciana Berger: I thank the hon. Gentleman for that intervention. The other point I made during the Minister’s representations was that he also used the word “exemption”; the example he gave of an exemption that could be introduced was tariffs for households in fuel poverty. Again, however, we do not have the detail of what other exemptions could be included, and the Opposition are concerned about what might come forward in secondary legislation and what that might entail.

Alan Whitehead: Would it be helpful if my hon. Friend asked the Minister whether he would consider that the adoption of the new clause would automatically invalidate the other new clauses being considered today—that is, would the new clause replace the other new clauses or would it stand alongside them? If the latter is the case, that is the letter of the law for the operation of the new clause, as far as the point about what is offered to customers is concerned. The points that have been made about the status of the new clause would then automatically fall away. Perhaps my hon. Friend will ask the Minister to clarify that.

Hugh Bayley: Order. Before the hon. Lady replies and finds herself facing another intervention, it might be helpful if I say that both Mike Weir and Alan Whitehead are on my list. If there are particular issues they want to pursue, there will be the opportunity for them to do so and to take interventions.

Luciana Berger: I thank my hon. Friend for his contribution. The Government could accept new clause 6 and it could stand alongside the Government new clauses. The Minister asked the Opposition to withdraw new clause 6, but I hope he will reflect on the contribution made by my hon. Friend. There is nothing to prevent the Government from accepting new clause 6, until we understand what the secondary legislation might look like.

Robert Smith: I thank the hon. Lady for clarifying the point; the hon. Member for Southampton, Test did not state which new clauses he meant. He talked about various clauses. Anyway, on new clause 6, I wanted to clarify the hon. Lady’s understanding of the oil market. New clause 6 refers to tariffs. My experience of the oil market is that it does not have tariffs; there are prices that are quoted at the time someone makes an order, and those prices depend on what the firm in question can get from the depot. The difference in prices between the various companies is their overheads for delivery and how they manage their delivery routes.

Luciana Berger: The hon. Gentleman heard the earlier discussion—when the right hon. Member for Bexhill and Battle, took an intervention from the hon. Member for South Holland and The Deepings—on why we need to see a complete change in that sector of the market. I am encouraged by the Minister’s comments and hope to see some changes. That is a whole issue in and of itself, so I hope to see some progress.
There is a lot of confusion in Committee this morning because we have not seen the proposed secondary legislation, and it was clear from the Minister’s remarks that a lot of the detail and clarification will appear in that. The proposals as we have them today, in spite of the Minister’s efforts to clarify them, are not what the Prime Minister said that they would be. They do good things but they are not, as they stand, legislation that forces energy companies to give the lowest tariff to their customers. They do not go as far as they could do. If energy companies are only allowed to offer one tariff for every type of contract, that is not the lowest tariff but the only tariff. Even the cheapest deal in an uncompetitive market is not the best deal. Ministers should be honest with the public about that.
It would be wrong to mislead people and to let them think that they must be on the best deal because the Government have said that the energy company has to put them on to the cheapest tariff. Alongside what the Government are introducing today, they should accept new clause 6 to guarantee that the most vulnerable customers—those over 75, those least likely to engage with the energy market, those least likely to switch but who would benefit the most from doing so—are given the best deal. It would help more than 4 million pensioners save on their energy bills and it would not prevent the Government from coming back at another time with legislation covering all consumers, or with this detail forthcoming in secondary legislation.
In short, in what the Government have proposed today they flatter to deceive. The proposals create more questions than answers for consumers and for energy companies. We await the detail, but the only reason for the proposals seems to be that the Government were put in a challenging situation by the comments made by the Prime Minister last October. In the Minister’s response, I hope that he will accept that the new clauses as drafted will not do as the Government said that they would do. For that reason, I hope that the Government will also accept new clause 6, so that those over 75 can be guaranteed the best deal.

Michael Weir: I do not want to be too critical of the Government proposals, because I accept that they are a genuine attempt to do something about the ever-escalating cost of energy to consumers, but I have several reservations about whether the proposals will have the effect that the Government hope. I will explore one or two of my reservations.
In new clause 13 powers are taken to require
“licence holders to change the domestic tariffs or other terms of domestic supply contracts so as to reduce the costs to their domestic customers for supplies of gas or electricity.”
Subsection (3)(e) of the new clause, however, then provides for
“requiring a licence holder to change the domestic tariff or other supply contract terms on which it supplies gas or electricity to a domestic customer by…switching to a different domestic tariff or different supply contract terms, unless the customer objects”—
that is the point I made in my intervention on the hon. Member for Liverpool, Wavertree about the green energy tariff—
“or…offering the customer, or inviting the customer to switch to, a different domestic tariff or different supply contract terms.”
My problem is with the “or”, the alternatives given. I fully appreciate that the Minister might argue that consumers should be given the maximum amount of choice and empowered to make their own decisions. I accept that to some extent. The plain fact of the matter, however, is that we all know—as remarked on in the regulatory impact assessment and by the Minister this morning—that there is a huge amount of inertia among energy consumers, in particular those who remained with their former monopoly supplier after privatisation.
If the clause remains as it is, there is a real danger that companies may take the second option and make an offer to the consumer, which prompts a question about what form that offer will take. At present, we receive a huge amount of paper from our energy providers. As well as bills, we get special offers; offers to maintain our domestic appliances, drains, pipes and electrics; and invitations to pay our bills in different ways, especially for those who they have not already managed to sign up on a direct debit—once they have done so, they regularly attempt to increase the amount we pay by direct debit, which sometimes bears no relation to the amount of energy that we actually use—and we now get annual and other regular energy statements. All that is very useful, but how many of our constituents take the time to go through such a mountain of information, and how many just put it in the recycling bin with all the other junk mail?
Option 1, on the other hand, is straightforward. If consumers are on a contract and their supply terms are not the best, they can automatically be transferred to a better deal, unless they specifically decide not to do so. The company has to approach them and say, “We don’t think you are on the best deal, and we suggest that you go on to this.” That answers the point about being on a green energy tariff—if consumers want to stay on it, they can say, “No, I am quite happy with it. I accept that it’s not the lowest, but I have a reason for being on it and I want to stay on it.”
This option would have a better chance of fulfilling the Prime Minister’s promise to ensure that every consumer is on the lowest tariff. Of course, it would have to be monitored to ensure that energy companies were indeed offering the lowest tariff, but that would surely be part of Ofgem’s remit and, to an extent, it would come under the provision in subsection (5) of new clause 13. I would be interested if the Minister addressed why there is almost a get-out clause for energy companies through their simply making an offer rather than taking action.
My other main concern is specifically about how the provisions relate to some of the poorest in our society, particularly those who have to rely on prepayment meters. The impact assessment states that the object is to
“move consumers on poor value ‘dead’ tariffs to better value ‘open’ tariffs”.
I raised the issue with the right hon. Member for Bexhill and Battle during the last DECC questions, and that was basically the answer the Minister gave me. However, page 3 of the impact assessment states that the provisions will
“require bills to include personalised estimates of the savings to be made from moving to the cheapest tariff for the customer’s current payment method”.
That seems to me to be the difficult point. If someone is on a direct debit tariff, that may be fine, but if, for example, they are on a prepayment meter, they will still be stuck on a higher tariff, because those tariffs are generally higher than ones available on direct debit. If the Government are truly intent on ensuring that everyone has the lowest possible bills, they must ensure not only that that happens within the type of contract that people already have, but that people are allowed to move to a cheaper type of contract.
The issue is important. As the Minister has not done so, I advise him to read the document from Citizens Advice Scotland on the people who go to see them about energy issues. They report that, in the past year, they have dealt with 7,400 people with 9,500 different energy issues, of which 83% related to difficulties with paying or debt. The report states that
“the cases highlighted by bureaux regarding difficulty paying are most commonly with regards to prepayment meters recouping an unaffordable amount for arrears every time the consumer tops up.”
That is the other problem with prepayment meters: it is not only that tariffs tend to be higher—to be fair, many companies now fix it at their standard tariff, but that is higher than the tariffs that can be achieved by other means—but that many of those on prepayment meters are put on them because they have a debt and part of that debt is recouped every time that the consumer tops up the meter. The costs of installation may also be added to that debt, meaning that consumers are pushed further into debt.
Prepayment meters tend to be used when a consumer is already struggling, which has the perverse effect that someone already struggling to keep up with payments on a cheap tariff, perhaps an online or direct debit one, who then falls into difficulties—due to losing their job, illness or any number of reasons—might end up being put on an even more expensive tariff, which will simply deepen their difficulties. The Citizens Advice Scotland report cites the case of a single parent with two children who currently has to lose £7 towards arrears every time she puts £10 in the meter. The Minister will appreciate that the remaining £3 is insufficient to heat her home. What chance does someone like that have of getting out of debt or of keeping her home warm?
Prepayment meters also have the problem of self-disconnection. People who cannot afford to heat their homes simply do not put money in the meter. There is no active disconnection by the energy company, but the end effect is the same. The CAB recommends that prepayment meters should be fixed at the cheapest tariff offered by the supplier. That would help to ensure that customers who have difficulty in paying for energy and use prepayment meters as a budgeting tool are not penalised for doing so, and that customers with arrears are not pushed further into debt by the additional costs of installing a prepayment meter and of paying a higher tariff.
I appreciate that there are difficulties with prepayment meters, and additional costs, but these people are struggling to heat their homes and to meet their bills. If the Government are serious about tackling the issue, they must bite the bullet, look at the whole issue of prepayment meters, and ensure that the most vulnerable have access to cheaper tariffs to get them out of the cycle of debt and to ensure that their homes are heated. Will the Minister consider that? The amendments will not be changed today, but we could consider the matter on Report. The Minister should consider how to tackle this important issue for many of our constituents.

Ordered, That the debate be now adjourned.—(Joseph Johnson.)

Adjourned till this day at Two o’clock.